Italian economy may need bailout within six months

One of Italy’s leading banks, Mediobanca, has stated that “time is running out” to save Italy’s deteriorating economy. As the credit crunch spreads to large companies, the bank has predicted that an EU bailout will most likely be needed within six months.

According to the Telegraph, Mediobanca’s top analyst, Antonio Guglielmi warned: “The Italian macro situation has not improved over the last quarter, rather the contrary. Some 160 large corporates in Italy are now in special crisis administration.”

Italy currently have debts amounting to over €2 trillion – the world’s largest behind the US and Japan – and with borrowing costs continuing to climb to just under 5%, there is mounting concern over the possibility of another euro zone crisis.

Marchel Alexandrovich of Jefferies Fixed Income, told the Telegraph: “We have a sell-off across the board. If the ECB doesn’t act, it could see all the gains of the past nine months vanish in two weeks, taking the eurozone back to square one.”

Comparisons have been made to 1992, when despite austerity measures an Italian economic crisis saw the country removed from the Exchange Rate Mechanism.

Earlier this year, Moody’s rating agency also identified Italy’s growing debt as a cause for concern: “We will have to verify the commitment of the new government and its ability to resolutely pursue the huge structural reforms the country needs to improve its creditworthiness. For now the situation remains difficult.”